The main concern with bankruptcy and taxes is losing a tax refund. If you file your bankruptcy case prior to filing your tax return, the bankruptcy trustee will look to see if you are anticipating a tax refund. In a Chapter 7 case, the trustee reviews the tax returns to determine if the trustee can seize the tax refunds to pay toward your debt. In almost all cases, your bankruptcy exemptions will protect your tax refunds; however, if there is any chance that you could lose a portion of your tax refunds, your attorney will discuss the pros and cons of filing a bankruptcy case now to help you decide what to do.
It may be in your best interest to wait until after you receive your tax refunds and use the money to pay living expenses. You must be careful how you spend the money so that you do not create a preferential payment or fraudulent transfer. Your attorney will advise you so that you can use the tax refund without creating a situation that could be a problem if you file a bankruptcy case. It is important to know that in the very few cases where filing a bankruptcy case may result in a chance of losing your tax refunds, there are ways to handle this situation without putting your other assets at risk by putting off filing bankruptcy.
In a Chapter 13 bankruptcy case, if you are expecting a tax refund, your attorney can advise you as to the best way to protect refunds that you expect to receive.
If there is only one thing that you remember from reading this blog, it should be that you should not delay filing bankruptcy for fear of losing a tax refund if your other assets are in jeopardy. In most cases, filing bankruptcy will not result in you losing your tax refunds. We cannot stress that strongly enough; however, each case is different so you should not rely on information you find online or what someone says happened to them when they filed bankruptcy. A qualified, experienced bankruptcy attorney must review your financial situation to determine how filing a bankruptcy case will affect your tax refunds.
We strongly encourage you to come into our office to meet with one of our bankruptcy attorneys. We offer a free consultation so that you can get answers to questions about bankruptcy and taxes as well as other answers to your other bankruptcy questions. Once we review your situation, we will be able to advise you if there is a risk of losing your tax refunds if you file a bankruptcy case now. The chance that a bankruptcy filing will affect your tax refund is very low; however, you will not know this until you meet with one of our attorneys.
Basing your decision to file bankruptcy on rumors and misinformation is not in your best interest. Our attorneys want to help you protect all of your assets while getting rid of the debt that is keeping you from enjoying life to the fullest. Don’t let fear and anxiety of something that is probably not a problem keep you from doing what is in your best interest.